Indonesia hikes fuel prices 44 per cent despite public anger

Indonesians have been queuing at the petrol pump to fill up as the government announced it is slashing fuel subsidies from today.

The price of petrol will go up 44 per cent from 4,500 rupiah per litre to 6,500, about 70 Australian cents. Drivers will have to pay 5,500 rupiah for a litre of diesel.

Indonesia's fuel prices are among the cheapest in Asia but the measure is deeply unpopular and sparked violent protests even before it was put in place.

It is the first hike in fuel prices since 2008 as Southeast Asia's top economy seeks to reduce crippling subsidies.

The government says the huge subsidies needed to maintain them have been draining the national budget and and have caused concern among investors.

"This is a very difficult decision and the government made this choice as a last resort," said Hatta Rajasa, coordinating minister for the economy.

"The global crisis has impacted our economic growth.

We need to take steps to improve the health of our economy."

Protests, police and petrol station queues

The move to cut one of the few government handouts in Indonesia has already sparked anger, with thousands fighting running battles with police outside parliament Monday as lawmakers voted on measures paving the way for an increase.

Police were out in force in major cities as the announcement was made late on Friday, but reported protests have been small and peaceful.

In the hours leading up to the hike, long lines formed at petrol stations as car and motorbike owners sought to fill up with subsidised fuel before the price rocketed.

Police were standing guard at many stations.

Compensation package for hardest hit

Following a marathon parliamentary session on Monday, politicians agreed on a revised budget that included a package of measures to compensate the millions of poor people likely to be hit hardest.

Poor households will receive $15 a month each for the next four months to offset the impact of the fuel hike, which is expected to cause the cost of everyday goods to go up as they will be more expensive to transport.

President Susilo Bambang Yudhoyono had insisted on the measures before any fuel hike, which comes at a sensitive time as parties gear up for elections in 2014.

Mr Yudhoyono has been seeking to lower the huge subsidies for some time and last year came close.

But parliament rejected the measure in the face of huge protests, which were far bigger and more violent than this year's.